Repeated incidents, is insider trading the bane of cryptocurrency exchanges?

Author: Chloe, ChainCatcher

Recently, Binance has once again been embroiled in a scandal involving internal employees suspected of insider trading. On December 7, a Binance employee took advantage of their position to promote a newly issued token on official social media, thereby earning personal benefits. This is not the first instance of internal corruption at Binance; a similar case occurred in March this year. Despite the official emphasis on zero tolerance and active responses, it has led to market criticism that altcoins have indeed become a cash grab, with retail investors needing to contend not only with institutions but also with internal employees exploiting their positions for profit.

Just issued a token, and the official post follows closely behind

On December 7, a token named "Year of the Yellow Fruit" (abbreviated as YEAR) was launched on the BNB Chain at 1:29 PM. Less than a minute later, Binance Futures' official X account @BinanceFutures posted a related tweet at 1:30 PM, with text and images suggesting the token's potential.

According to data, the token surged over 900% after the post was published, peaking at $0.0061, with a fully diluted valuation (FDV) reaching $6 million, before dropping over 75.3% to $0.001507 at the time of writing. The coincidental timing of the post has raised community suspicions that the employee who published it attempted to manipulate the market for personal gain.

According to DLNews, the inspiration for the Year of the Yellow Fruit token initially came from a post by the official Binance account on December 4 titled "2026: the year of the yellow fruit," which quoted former Goldman Sachs executive Raoul Pal and Coin Bureau founder Nic Puckrin during their speeches at the Binance Blockchain Week conference, encouraging traders to "plant and expect a harvest," aligning closely with the images and text released by the internal employee.

In response to the incident, Binance stated that a preliminary investigation has confirmed that an internal employee is suspected of using their position for personal gain. The implicated employee has been suspended, and Binance has proactively contacted relevant authorities in the employee's jurisdiction to seek legal action. Additionally, users who provide valid reports will be rewarded with an average distribution of $100,000 based on the bounty promise.

Ironically, just a day before the incident, He Yi posted that Binance employees are not allowed to participate in any token issuance or promotion, only for an internal employee to be exposed for insider trading the very next day.

The underlying issue reflects that, due to the lack of KYC for on-chain addresses, exchanges find it challenging to supervise all operational behaviors of employees in the absence of regulation. Even with full monitoring of work computers and phones, there remains significant room for insider trading operations. Similar cases have occurred at mainstream exchanges like Coinbase and OKX.

Two insider trading incidents in a year, challenges for internal risk control at exchanges

In March this year, a Binance employee, Freddie Ng (a former business developer for BNB Chain, later joining the Binance Wallet team), allegedly traded on insider information regarding the upcoming rise of the UUU token. He purchased approximately $312,000 worth of UUU tokens using 10 BNB through his secondary wallet (0xEDb0…), subsequently transferring all tokens to a money laundering wallet (0x44a…).

At the token's peak price, he sold the first transaction through a Bitget wallet, profiting 181.4 BNB, equivalent to $110,000. The remaining UUU tokens were dispersed to eight different addresses, each worth tens of thousands of dollars. However, the investigation revealed that the funds in the secondary wallet had originated from his real-name wallet freddieng.bnb (0x77C…) 121 days prior, a slip that ultimately exposed his identity.

Following Binance's investigation, the employee was also suspended and handed over for legal processing, with the whistleblower receiving a $10,000 reward. The interval between these two incidents was only nine months, highlighting the challenges of internal control at Binance.

However, Binance is not the only exchange facing internal control issues. In 2022, U.S. authorities charged a former product manager at Coinbase and two accomplices, stating they used insider information about tokens set to launch to trade at least 25 assets before public announcements, illegally profiting over $1 million.

Additionally, according to news from last week, several Coinbase shareholders recently filed a lawsuit in Delaware, accusing Coinbase CEO Brian Armstrong and board member Marc Andreessen of leading a cover-up and personally profiting from stock sales.

Shareholders claim that Coinbase's leadership was aware of serious issues within the company but deliberately or recklessly concealed information, leading to inflated stock prices. In early 2023, Coinbase reached a $100 million settlement with the New York Department of Financial Services over KYC and AML procedure loopholes, with executives accused of being aware during the investigation yet issuing misleading statements claiming compliance.

Moreover, insiders were aware as early as January of this year about a serious data breach where hackers obtained sensitive customer data through a third-party vendor, but it was not publicly disclosed until May, resulting in a concealment period of several months that left shareholders and investors unaware of the risks. During this concealment period, executives sold approximately $4.2 billion worth of Coinbase stock at peak prices. Plaintiffs allege that misleading statements and information concealment by executives directly inflated stock prices, allowing insiders to reap substantial profits and potentially avoiding billions in losses.

In addition to Binance and Coinbase, OKX has also recently been exposed for internal anti-corruption cases. According to a post by @BroLeonAus, an account had made unusual purchases of a certain token before an announcement on OKX, despite having almost no record of altcoin operations. The account suddenly bought in before the positive news was released and quickly sold after the news landed, making only a 10% profit, about $2,000. Initially, OKX's internal investigation yielded no results, but months later, it was discovered that the insider account had conducted internal transfers with a senior employee's account, revealing that it was actually the account of the senior employee's wife, leading to the employee's dismissal.

In this case, if the employee's wife had operated on-chain or had not conducted internal transfers that exposed the situation, this case might have remained buried in obscurity.

This implies that the cases exposed are always the minority. Regardless of how exchanges proclaim their policies, the inherent characteristics of blockchain technology provide convenient conditions for insider traders.

Although on-chain data is public, who can identify which addresses belong to exchange employees or related accounts among the vast number of addresses? In a regulatory vacuum, exchanges are both rule-makers and enforcers, as well as beneficiaries. This power structure inherently sows the seeds of systemic risk. The so-called zero-tolerance policy and whistleblower reward mechanism resemble a public relations crisis management cover, only appearing belatedly when incidents are exposed and cannot be concealed, while those that remain undiscovered may represent a much larger part of the iceberg.